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ALLETE's Unit Buys Tonka Water, Expects Strategic Benefits

U.S. Water Services, a wholly owned subsidiary of ALLETE Inc. (ALE - Free Report) , announced the acquisition of Tonka Water, a major supplier of municipal and industrial water treatment system in Michigan. However, other terms of the acquisition were kept under wraps.

What does it mean for ALLETE?

ALLETE is an established utility in the United States and so far has been successful in delivering integrated solutions by expanding strategically and catering to its customers through engineering and equipment capabilities.

Prior to this acquisition, U.S. Water Services acquired Water & Energy Systems Technologies in November last year. This buyout proved to be significant for the company as it aided in serving growing mix of over 4,800 industrial customers. So, ALLETE is not new to this strategy of growth through acquisitions and its new buyout is likely to be no exception.

ALLETE’s U.S. Water Services provides integrated water management for industry by combining chemicals, equipment and engineering for customized solutions.

As such U.S. Water Services is already an established solutions provider nationwide and well poised to take advantage of opportunities stemming from strategic deals and acquisitions. This will prove beneficial for the company going forward.

Consolidation in Water Space

Consolidation is the need of the hour in the fragmented U.S. water utility space. The water infrastructure in the United States has aged and needs to undergo extensive repair and overhaul. ALLETE’s subsidiary U.S. Water Services has started expanding water operations through acquisitions, in addition to organic investments.

We are witnessing major acquisitions in the water utility space. American Water Works Company (AWK - Free Report) closed several buyouts in the first half of 2017, adding nearly 22,000 customers through acquisition and organic growth. Other pending acquisitions when closed is expected to increase the company’s customer base by 34,000 in 2017.

Another major player in the water utility space, Aqua America Inc. (WTR - Free Report) , successfully concluded acquisitions as of Aug 2, 2017 adding 1,002 customers. Its other pending acquisitions, when closed over the course of the year, will add another 11,087 customers to its existing base.

Price Movement

In the last 12 months, shares of ALLETE have gained 36.7%, outperforming the industry’s. increase of 11.7%.

The consistent performance of this utility is having a positive impact on its share prices.

CenterPoint Energy delivered an average surprise of 10.34% in the trailing four quarters. Its 2017 estimates have risen by 3 cents to $1.31 per share in the last 90 days.

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